Serial Acquisitor

T he glittering generalities of the speaker have left an impression more delightful than permanent."

That somewhat tart summation of a political speech -- which appeared in the Providence Journal in 1849 -- strikes us as apt to prove a remarkably prophetic description of the effects of Alan Greenspan's testimony last week before the Senate Banking Committee.

Investors' initial joy at his remarks sent the market soaring. Simply the fact that the speech contained no explicit call for a rate hike was enough to spark a flurry of buying from relieved traders. The joy, however, proved, well, transient; witness Friday's downdraft.

We are somewhat hesistant to read too much into the Fed Chairman's reflections. No man alive -- politician, scholar or diplomat -- acts more in concert with the old adage that "speech was given to conceal thought."

Still, his tone was tentatively hopeful: While it may "be premature to make a definitive assessment ... it is clear that, for the time being at least, the increase in spending on consumer goods and houses has come down several notches, albeit from very high levels."

It would be much to his liking indeed if Mr. Greenspan found rate hikes unnecessary -- until at least after the November election. Certainly, the pattern of increases since June '99 -- three quarter-point boosts, followed by a Christmas hiatus in honor of Y2K -- two more quarter-point rises this year, then the big May half-point jump -- suggest a Fed chairman more than subliminally aware that Americans go to the polls come November. But then, why should a man so consummately skilled in English syntax be bereft of political savvy?

Or stock-market savvy, for that matter. Mr. Greenspan is obviously enormously relieved by the quiescent temper of the market. He charmingly disclaims the notion as his own, citing "other analysts" who suggest "the flattening in equity prices, on net, this year" as restraining consumer spending. These analysts, he continues, cite the "diminution of the wealth effect through the spring and early summer." But therein lies the rub. Should the stock market once again book a trip to the moon-fueled by investors' enduring belief that rate hikes are history -- then Mr. Greenspan may have no recourse but to sigh and opt to leave an impression that's more permanent than delightful.

A good track record? Nah, this company boasts a great one!

Profits have risen for 31 years straight. Over that span, sales have grown a brisk 25% a year, while profits averaged over 33%.

So, what's not to like? Draw up a chair and we'll tell you.

The company is Cincinnati-based
Cintas Corp.
And what makes its splendid record all the more impressive is that Cintas is hardly in the rocket-science business. Rather, it rents and sells uniforms, with sidelines in entrance mats, sanitation supplies and first-aid products.

Be it ever so humble, the field generates a tidy $10 billion or so in annual revenues, and Cintas is by far the leader, with an 18% stake. Rivals include privately held Aramark, with 13% of the market, followed by G&K Services and
UniFirst
, each claiming about 5%, and
Angelica
, with roughly 4%.

The rental part of the business -- which includes the laundering and delivering of uniforms, floor mats and shop towels -- weighs in on the revenue scale at about $6 billion. Direct sales, roughly $4 billion.

Some 75% of Cintas' revenues come from the more profitable end-uniform rentals. And that's a market that over the past decade has grown about 6% a year, roughly twice as fast as the general economy. In the past half decade, as this expansion took wing, jobs multiplied and corporations awash in cash decided to spruce up their corporate images, the growth rate quickened to 8% or so.

Aided by a hearty acquisitive appetite, over the past three years Cintas has more than doubled in size and in the past four, nearly tripled. Revenues are now approaching $2 billion.

From early '99 through this past spring, the stock of virtually every publicly traded uniform company (Cintas included) was cut in half -- or worse. Investors began to fret that the uniform market was mature and starting to slow. And anyway, who needs to wear a uniform if you work for an Internet company? Those fears, moreover, only intensified as one uniform company after another announced disappointing results.

But now, while shares of rivals like G&K Services and UniFirst languish at prices that are 50% or more from their highs, Cintas' stock, at 45 1/4, has recovered to within striking distance of its all-time peak.

"I think we have totally dispelled that notion," he says. "I think that was some rumor last year. Investors saw some of our competitors stumble. But if you look back in history, our competitors always stumble every few years."

Then he added, rather emphatically, "We have not stumbled."

Stumbled, no. But maybe shuffled a little. In the fiscal year ended May, on 9% higher revenues, Cintas earned $193 million, or $1.14 a share, compared with 97 cents in fiscal '99. Without the drag of a large acquisition made in March 1999, top-line growth would have been 13.3%, still way off the historical pace.

Gale, however, notes that in the final quarter of the year, Cintas's rental revenues, exclusive of acquisitions, were up 15%. That internal growth, plus some 5% chipped in by acquisitions, will make sales grow on average 20%, he predicts. In this fiscal year, ending May 2001, Cintas will earn $1.32-$1.36 a share, Gale estimates. He pegs the range for fiscal 2002 at $1.54-$1.60. The midpoints would imply earnings growth going forward of just over 17%. We hate to argue with a man about his own company, but we simply don't think things will go as smoothly as management or Wall Street expects.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.